Q: My husband makes jewelry
and I design Web pages. We want to sell his jewelry on the Internet
and have started designing the jewelry pieces and the Web site. We
are both sole proprietors. What is the most advantageous way to
work together and share expenses and profits?

Name withheld

A: What's
"advantageous" for some may not be for others. The best
choice will depend on what's most important to you and your
business in terms of ease, cost and protection from liability as
well as tax consequences.

A partnership is the easiest and least costly agreement to
establish. Because you're married, you don't even need a
written agreement. But it's still a good idea to create
one.

It's possible that being in business together may create
some additional strains on your relationship. Remember that in the
unfortunate eventuality of divorce, the partnership would have to
be appraised as part of a divorce settlement unless you have a
written agreement that provides how you'll value the business
in case of divorce.

If you want to protect your personal assets from possible debts
or liabilities of the business, consider an LLC--they're less
expensive to form and maintain than corporations. If your
company's earnings are high, however, consider a C corporation,
which has deductions not available to partnerships and S
corporations. Corporations can also protect your personal assets
from business liabilities, but they're the most expensive type
of business organization to form and maintain.

Another option is for one of you to employ the other. This lets
you use Section 105 of the tax code to deduct 100 percent of your
noninsured medical costs.

Whatever your decision, make sure to run these options by a tax
professional familiar with family-owned businesses. For more
information, visit Nolo.com, a legal Web site with a variety of
resources.